Why Did The Insurance Company Deny The Claim?

Tarrant County attorneys who handle insurance cases need to understand the rules related to the Texas Prompt Payment of Claims Act.
Texas Insurance Code, Section 542.056(c) says “If the insurer rejects the claim, the notice required by Subsection (a) or (b) must state the reasons for the rejection.” Arguably, an insurance company that fails to comply with this requirement could be held to have waived additional reasons that were not timely raised. However, this argument was rejected in a 2005, 5th Circuit Court of Appeals case. That court stated that the insurance company could raise an additional defense, where there was no allegation that the initial reason was unreasonable or made in bad faith.
Here is something to think about:
The phrase “rejects the claim” does not specifically address a situation where an insurer pays part, but not all, of a claim. It also does not specifically state whether a claim is “rejected” when the insurer refuses to pay, for a reason related to coverage — i.e, if the claim is closed without payment because of noncooperation by the insured. Construing the statute liberally to promote its underlying purposes, it is reasonable to construe the term “reject” to mean any decision by the insurer not to pay the claim or not to pay a part of the claim. The insurer should state in writing the reason for any such decision. If the insurer pays part of the claim, the insurer should state in writing the reason it did not pay the rest.
Texas Insurance Code, Section 542.056(d) says that if the insurance company is unable to accept or reject the claim within the period specified, the insurance company must notify the claimant, not later than the date specified. This notice must give the reasons the insurance company needs additional time.
Where the insurance company requests a 45 day extension, it will then have 15 business days plus 45 calendar days to accept or reject a claim. This period is greater than the 60 day time period contained in Section 542.058. This probably is reconciled through the “except as otherwise provided” language contained in that Section.
Also, Section 542.058 says that if payment delay continues past the statutory deadlines, or not more than 60 days, that the insurance company shall pay damages.
An insurance company may automatically violate the statute by failing to pay a claim that is shown to be valid.
The “60 day rule” is in addition to other deadlines in the statute. Under 542.058, once all items are received pursuant to Section 542.055. the insurance company has 60 days to pay the claim if it is a valid claim. This could mean that within this time period, the insurance company must evaluate the items received from the insured, secure any items needed from any third party, make and communicate a claims decision to the insured, and pay the claim.
It is worth noting that even if the claims is not paid within 60 days of receiving all items under Section 542.055, an insurance company will arguably not violate the statute if it complies with the remainder of Section 542.056 and 542.057. In other words, once all items are received from the insured, if the insurance company requests a 45 day extension within one business day, makes a claims decision before the 45 day extension period expires, and then pays the claim within five days after the claims decision has been made, this should comply with the statute. Even though this is more that 60 calendar days, it is in compliance with the other deadlines. The language “except as otherwise provided” in the 60 day provision may allow this result. As currently worded, however, an insurance company can violate the “60 day rule” even though it satisfies the “45 day rule.”
Confusing? See and experienced Insurance Law Attorney.